City Government

A Taxi Fare Increase?

Â What a difference being in the private sector makes, at least for transportation
providers in New York City.

Before last November’s election, Governor George Pataki and his appointees
on the Board of the Metropolitan Transportation Authority (MTA) said that no
fare increase was under contemplation. As every straphanger knows, the base fare
increased by 33 percent, from $1.50 to $2.00, just six months later.

By contrast, taxicab owners, who represent the city’s largest privately
operated transportation sector, formally petitioned the Taxi and Limousine Commission
(TLC) for a 23.3 percent fare increase in November 2001. The commission held
a hearing at the end of December 2001 but took no further action, even though
soon after his inauguration Mayor Michael Bloomberg endorsed a taxi fare increase.
The taxi industry resubmitted the petition this summer. To date, however, no
hearing has been scheduled nor has Taxi and Limousine Commission announced a
timeline for consideration of the industry’s request.

Thus, while the MTA was able to raise fares in a mere six months, the city has
taken two years without deciding yea or nay on a taxi fare increase and the clock
continues to tick.

Although the transit fare increase was controversial, the MTA’s reasoning
was not particularly complex. MTA officials based the fare increase on the need
to balance the authority’s budget and avoid major service cuts. There was
a simplicity to the authority’s logic â€“ higher costs mean higher
fares.

The Taxi and Limousine Commission, on the other hand, is instructed by the City
Charter to consider “all facts
which in its judgment have a bearing on a proper determination” of whether
to grant a fare increase. These range from fare revenues to “the return
upon capital actually expended.” Thus, the commission has looked into a
range of issues including changes in taxi operating costs, changes in ridership,
the availability of drivers and fares in other cities. Unlike the Metropolitan
Transportation Authority, the Taxi and Limousine Commission lacks a clear focus
for deciding whether to adopt or reject a fare increase.

It is particularly ironic that the commission itself was behind much of the increase
in taxi operating expenses in recent years. The commission mandated that only
new vehicles can be put into service as taxicabs, required the more-expensive
stretch version of the Ford Crown Victoria, and insisted on expanded insurance
coverage for the vehicles. These actions were long overdue and benefited the
riding public. Yet when it comes time to underwrite the costs, the Taxi and Limousine
Commission hesitates.

Not so at the Metropolitan Transportation Authority. The MTA has also increased
service (largely in response to rising ridership) and bought fleets of new rail
cars and new buses. The MTA invested billions of dollars in the process, much
of it paid for through fare-backed borrowing. No one questioned whether this
spending needs to be paid for, either through fares or government subsidies.

One area where the private and public sectors both experience problems is with
tracking of expenses and revenues. The MTA came under blistering criticism for
hiding the true state of its finances, first painting an overly rosy pre-election
picture of its finances and then drawing what auditors viewed as an artificially
gloomy picture after the 2002 election.

The finances of taxi owners have often been fairly opaque, the picture complicated
by the diversity of operations within the industry. But at least the MTA keeps
records, however open to criticism. The Taxi and Limousine Commission, on the
other hand, has not conducted its own analysis of taxi expenses or the need for
a fare increase in nearly a decade. Until recently, TLC pointed to the city charter’s
provision that the burden of proof for showing that current rates are “unreasonable” lies
with the taxi industry. That is fair enough and industry figures submitted financial
information to justify their fare request. But recently, the city decided to
use a consulting firm to conduct an independent analysis of taxi industry finances.
That step may be long overdue but it will further stretch out the process.

This sort of contrast between public and private transportation providers is
evident not only with the fare issue but also with another big issue affecting
both taxicabs and transit: the supply of service. The MTA has a well-developed
methodology for assessing whether more buses or trains are needed on each route.
MTA staff regularly observe levels of crowding on trains and buses; this information
is feed into periodic reviews of service levels. Thus, when fare incentives,
service improvements and other forces produced record-fast growth in subway and
bus patronage, the MTA expanded service. Not enough, said critics, and not quickly
enough, but at least someone was keeping track and taking some action.

Not so with taxicabs. The only recent systematic studies of taxicab availability
were one sponsored by a taxi industry group two years ago and another conducted
by yours truly in 2000. Both of these studies showed a need for more cabs. (Both
studies are on my website.) The
city lacks a methodology for determining whether more cabs are needed, not to
mention a regular process for considering the issue. As a result, over the past
60 years only 400 new licenses have been issued (in the mid-1990s) despite rapid
growth in the demand for cab service.

Mayor Michael Bloomberg has proposed issuance of up to 900 new taxi medallion
licenses. The mayor wasn’t motivated by a sudden realization that the city
needs more cabs, however. He was motivated by the city’s desperate need
for new revenues. The new medallions would be auctioned to the highest bidder,
which would bring a total of $220 million to city coffers at current medallion
prices.

Despite the riding public’s need for more cabs and the city’s need
for revenues, the process to issue additional licenses has moved at about the
same pace as the fare increase.

Bloomberg proposed the 900 new cabs in the spring of 2002. The city is just now
conducting the required environmental reviews. Any additional licenses will be
issued in stages over three years, probably starting sometime in 2004. Meanwhile,
would-be taxicab passengers are left to respond to the friendly honk of the car
service or black car illegally picking up street hails.

Taxicab fares and service levels are important because cabs are an important
transportation provider in New York City. According to the NYC Taxicab
Fact Book,
cabs carried 11 percent of riders using taxis, subways, buses, car services
or black cars in 2002, and 25 percent
of passengers using these modes within Manhattan. Looking at fares paid instead
of ridership raises the profile of cabs even further. Taxi fares (including tips)
totaled $1.4 billion in 2002. As a comparison, this is two-thirds the total of
$2.1 billion that riders paid in MTA subway and bus fares in 2002.

Whether taxi fares should be increased and whether additional medallion licenses
are needed are issues that can be discussed and debated. Even though the MTA’s
method of addressing its fare and service issues has been subject to criticism,
the contrast between taxicabs and transit shows that the city could do a much
better job addressing taxi fare and supply issues. The city’s shortcomings
in these areas demonstrate the perils of being a private sector transportation
provider, even in Mayor Bloomberg’s business-friendly New York.

Bruce Schaller is Principal of Schaller Consulting, which provides research and analysis to government, business and non-profit groups seeking to identify and meet customer needs in the transportation sector. He is also a Visiting Scholar at the Center for Transportation Policy and Management at New York University.

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